Buying an occupied 3-unit with NO leases

16 Replies

Considering submitting an offer on a 3 unit which is fully rented. The current tenants have been living in each unit between 3-10 years. Concerned about my recourse / ability to collect rent consistent with what the current owner states it is. I don’t want to get into a situation where I’m evicting 2 or 3 of the units. The plan would be to execute new leases the moment we take ownership, however the tenants may simply refuse. Per the current owners rent are and my calculations, I’ll cash flow about $500/month on the entire property. This accounts for all normal expenses as well as cap ex. Any advice would be much appreciated! Thanks

Have the seller provide bank statements showing monthly deposits matching the amount he said each tenant has been paying. This will at least let you verify the amount and that they pay on time. Then you can establish new leases immediately upon taking possession.

Look up estopel agreements. This is when the tenants and in this case current landlord sign to say this is my rent, my security deposit etc. It should work similiar even if there is no written agreement. It states current facts, talk to your lawyer about it. Then you can do a lease with your terms or have them vacate.

@Brian Garrett - Sorry if your feelings were hurt Brian. I quickly reviewed the other post and responded to a great piece of advise I had yet considered.
I hope nothing else upsets you today.

@Mike Dorneman You may want to step back from investing and get back to educating. By the way estoppel agreements are not common in residential deals. Good luck to you!

In some states a "verbal" lease is a valid agreement for a specified amount of time. In my state, it's one year. Sure, there are all kinds of problems with this, but I'd find out what the laws are in your state- that way you can move forward with confidence.

Also- if you can't get tenants to pay the rents that the owner states they do, why not get rid of them? Unless the owner is lying about the rents, which I suppose is possible. If the rents you expect are close to market, you should be able to get good tenants in there who pay rent on time. Evictions are the most fun, but if it's a GREAT deal, don't let that stop you.

@Mike Dorneman You could also stipulate in the contract that the owner must provide written month to month leases at closing. That shouldn’t be a major hardship on the owner or tenants, it’s the basic arrangement they have now but in writing so everyone is on the same page.
@Mike Dorneman Assuming you are getting market rents, and there Is a good track record wIth rents beIng paId on time, I wouldn’t worry about getting long term leases in place. This gives you the flexibility to end leases in the future if you want to rehab or raise rents.

@Mike Dorneman

As Colleen said, Request Estoppel Certificates of the tenants which will confirm actual figures or give you the facts to make your decision to go through or not. They are very common in many areas, I’ve used them even on as small as 2 units in CA and nobody gets their feathers ruffled.  In fact, it confirms to you what they expect to be paying.

Also, as Brian commented you can ask for monthly bank statements (ask for 12+ months) or even their schedule E of their tax returns they file with the income and expenses for the property. 

Don’t be shy of asking for documents and doing your due diligence as the worse case is you don’t and find you bought a bad deal and really wish that you did.  

Good Luck!

@Mike Dorneman As others have noted I would be sure to check local laws on requirements around notifications to tenants. In GA it requires 60 days notice for m2m leases.

Can't hurt to chat with a local landlord-tenant lawyer on how the laws in this city tend to operate, as far as verbal or other agreements. Also, I like the idea of asking for at least a month to month lease at closing. I'd definitely ask for seller's bank statements or proof of payment by tenants. Not an unreasonable request at all.